Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 76719-MA

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

PROGRAM DOCUMENT FOR A PROPOSED LOAN

IN THE AMOUNT OF EUR 78.1 MILLION (US$100.0 MILLION EQUIVALENT)

TO

THE KINGDOM OF MOROCCO

FOR A

SECOND EDUCATION DEVELOPMENT POLICY LOAN

APRIL 29, 2013

Human Development Department Maghreb Department Middle East and North Africa

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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MOROCCO GOVERNMENT FISCAL YEAR January 1 – December 31

CURRENCY EQUIVALENTS

(Exchange Rate Effective as of March 31, 2013) Currency Unit Moroccan Dirham

US$1.00 = MAD8.65 EU€1.00 = US$1.28 SDR1.00 = US$1.50

WEIGHTS AND MEASURES Metric System

ABBREVIATION AND ACRONYMS

AAER School Support Association (Association d’appui à l’école de la réussite)

AECID Spanish International Cooperation Agency for Development (Agencia Española de Cooperación Internacional para el Desarrollo)

AFD French Development Agency (Agence française de développement) AfDB African Development Bank AREF Regional Education Office (Académie régionale d’éducation et de

formation) BAM Central Bank of Morocco (Bank al-Maghrib) CNEF National Education and Training Charter (Charte nationale de

l’éducation et de la formation 1999-2009) COBIT Control Objectives for Information and Related Technology COSO Committee of Sponsoring Organizations of the Tradeway Commission CPAR Country Procurement Assessment Review CPS Country Partnership Strategy CREE Regional Assessment and Testing Center (Centre régional de

l’évaluation et des examens) CRMEF Regional Teacher Training Center (Centre régional des métiers de

l’éducation et de la formation) CSC Central Steering Committee CSE Higher Council for Education (Conseil supérieur de l’enseignement) DA Designated account DPL Development policy loan EDPL1 First Education Development Policy Loan EDPL2 Second Education Development Policy Loan EIA Environmental Impact Assessment EIB European Investment Bank EU European Union EU€ Euro FDI Foreign direct investment GDP Gross domestic product HCP National Statistics Office (Haut Commissariat au Plan) IMF International Monetary Fund INDH National Human Development Initiative (Initiative nationale de

développement humain) JICA Japanese International Cooperation Agency

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MAD Moroccan dirham MDG Millennium Development Goals MEF Ministry of Finance (Ministère de l’économie et des finances) MEN Ministry of Education (Ministère de l’éducation nationale) MENA Middle East and North Africa Region MTEF Medium-Term Expenditure Framework NGO Non-governmental organization NIF Neighborhood Investment Facility PARSEM Basic Education Reform Support Program (Programme d’appui à la

réforme du secteur de l’éducation et de la formation) PAMT Education Action Plan (Plan d’action à moyen terme 2013-2016) PEFA Public Expenditure and Financial Accountability PER Public Expenditure Review PFM Public Financial Management PIRLS Progress in International Reading Literacy Study PJD Justice and Development Party (Parti de la justice et du

développement) PLL Precautionary and Liquidity Line (IMF) PNEA National Learning Assessment Program (Programme national

d’évaluation des acquis) PPD Public Procurement Decree PUEN Education Emergency Program (Programme d’urgence de l’éducation

nationale 2009-2012) RSC Regional Steering Committee TFP Technical and Financial Partners TIMSS Trends in International Mathematics and Science Study UCS Use of Country Procurement Systems in Bank-Supported Operations US$ United States dollar

Vice President: Country Director:

Sector Director: Sector Manager:

Task Team Leader:

Inger Andersen Simon Gray Steen Lau Jorgensen Mourad Ezzine Jeffrey Waite

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INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

PROGRAM DOCUMENT FOR A PROPOSED

SECOND EDUCATION DEVELOPMENT POLICY LOAN

TO THE KINGDOM OF MOROCCO

TABLE OF CONTENTS

LOAN AND PROGRAM SUMMARY ......................................................................................................... vi I. INTRODUCTION ............................................................................................................................ 1 II. COUNTRY CONTEXT ................................................................................................................... 3

II.A. Recent economic developments ............................................................................... 3 II.B. Macroeconomic outlook and debt sustainability ...................................................... 5

III. THE GOVERNMENT’S PROGRAM AND PARTICIPATORY PROCESSES ....................... 9 III.A. Education sector background and key issues .......................................................... 9 III.B. Government program .............................................................................................. 15 III.C. Implementation costs............................................................................................... 17 III.D. Participatory process ............................................................................................... 18

IV. BANK SUPPORT TO THE GOVERNMENT’S STRATEGY .................................................... 19 IV.A. Link to the Country Partnership Strategy ............................................................... 19 IV.B. Collaboration with the International Monetary Fund and other donors .................. 19 IV.C. Relationship to other Bank operations .................................................................... 21 IV.D. Lessons learned ....................................................................................................... 22 IV.E. Analytical underpinnings ........................................................................................ 24

V. THE PROPOSED EDUCATION DEVELOPMENT POLICY PROGRAM ............................. 25 V.A. Operation description ............................................................................................... 25 V.B. Policy areas .............................................................................................................. 27

VI. OPERATION IMPLEMENTATION ............................................................................................. 32 VI.A. Poverty and social impact ....................................................................................... 32 VI.B. Gender and inclusion .............................................................................................. 33 VI.C. Environmental aspects ............................................................................................ 33 VI.D. Implementation, monitoring and evaluation ........................................................... 33 VI.E. Fiduciary aspects ..................................................................................................... 35 VI.F. Risks and risk mitigation ......................................................................................... 37

ANNEXES

ANNEX 1: LETTER OF DEVELOPMENT POLICY ................................................................................ 39 ANNEX 2: SECOND EDUCATION DEVELOPMENT POLICY LOAN POLICY MATRIX .............. 58 ANNEX 3: GOVERNMENT’S EDUCATION EMERGENCY PROGRAM (PUEN) PROGRESS

INDICATORS .............................................................................................................................................. 64 ANNEX 4: FUND RELATIONS NOTE ....................................................................................................... 69 ANNEX 5.1: MACROECONOMIC DEVELOPMENTS OVER THE LAST DECADE ........................ 73 ANNEX 5.2: PUBLIC DEBT SUSTAINABILITY AND EXTERNAL FINANCING REQUIREMENTS

.............................................................................................................................................. 76 ANNEX 5.3: COUNTRY AT A GLANCE ................................................................................................... 79

v

The proposed loan was prepared by a World Bank team consisting of Jeffrey Waite (Task Team Leader and Lead Education Specialist), Nadine Poupart (Senior Economist), Khalid El Messnaoui (Senior Economist), Abdul-Wahab Seyni (Senior Social Development Specialist), Alaa Ahmed Sarhan (Senior Environmental Specialist), Jean-Charles de Daruvar (Senior Counsel), Abdoulaye Keita (Senior Procurement Specialist), Lamyae Hanafi Benzakour (Financial Management Specialist), Hassine Hedda (Finance Officer), Christina Wright (Operations Officer), Fatiha Bouamoud (Program Assistant) and Emma Etori (Program Assistant). The team worked under the guidance of Mourad Ezzine (Sector Manager Education) and Simon Gray (Country Director Maghreb). The team benefitted from interactions with colleagues from the African Development Bank, the European Commission, the European Investment Bank, the French Development Agency, the Japanese International Cooperation Agency and the Spanish International Cooperation Agency for Development. Finally, the team is greatly indebted to many officials of the Government of Morocco, with especial thanks due to the Ministry of Education, the Ministry of Economy and Finance and the Ministry of General Affairs and Governance.

vi

LOAN AND PROGRAM SUMMARY

KINGDOM OF MOROCCO

SECOND EDUCATION DEVELOPMENT POLICY LOAN

Borrower Kingdom of Morocco

Implementing Agency Ministry of Education

Financing Data IBRD Variable-Spread Loan with 29 years maturity, including a 7-year grace period in an amount of EU€ 78.1 million (US$100.0 million equivalent)

Operation Type

Single-tranche stand-alone Development Policy Loan

Main Policy Areas

• Achieve universal basic education • Improve system performance (teaching, management and

stewardship) • Mobilize and utilize resources

Key Outcome Indicators

• Ratio of new rural schools to new urban schools planned in the previous year

• Number of new social support methodologies developed (cumulative)

• Number of Regional Assessment and Testing Centers established • Proportion of Regional Assessment and Testing Centers

producing an annual report during the previous year on its assessment and testing activities

• Number of students enrolled in Regional Teacher Training Centers

• Number of Regional Teacher Training Center graduates assigned to teaching positions

• Ratio of the urban female-male teacher ratio to the rural female-male teacher ratio (primary and lower secondary)

• Ratio of the urban student-teacher ratio to the rural student-teacher ratio (primary and lower secondary)

• Proportion of resource management decisions taken by AREFs • Revised guidelines for school charter development and funding

use, based on recommendations of the evaluation of school charter implementation, sent to all schools

• Proportion of regional internal audit units producing an annual report during the previous year

vii

Program Development Objective and Contribution to Country Partnership Strategy

The proposed program aims to strengthen the schools sector’s institutional arrangements in the short term, in ways that in the medium term will: (i) increase access to school education, especially for rural girls and boys at the lower secondary level; (ii) improve the quality of teaching and learning in primary and lower secondary education; and (iii) enhance efficiency in decentralized governance of the schools sector. The proposed program would contribute to the Country Partnership Strategy’s second pillar – improving the quality of service delivery to citizens – by improving equity, access and quality of education service delivery.

Risks and Risk Mitigation

• Implementation of key and sensitive reforms may not be continued under the PAMT 2013-2016. The Bank team will continue to engage the Government in a close dialogue on these reforms, and to support decision making through technical assistance when important technical issues arise.

• The reform program faces resistance from unions, including teacher resistance to the efficiency measures and the move

toward greater accountability. The Government will continue to engage in a broad dialogue with teacher unions and teachers, with a view to creating a buy-in to the reform program through participation and decision-making.

• Attainment of the ambitious objectives of the Government’s program may be constrained unless sufficient resources are made

available. Education has been a national priority for successive government and this level of political commitment is expected to continue.

• Implementation of the governmental program may be constrained by the capacity of decentralized agencies. The MEN is making considerable efforts to strengthen the capacity of its management systems.

Operation ID P120541

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INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

PROGRAM DOCUMENT FOR A PROPOSED

SECOND EDUCATION DEVELOPMENT POLICY LOAN

TO THE KINGDOM OF MOROCCO

I. INTRODUCTION 1. The wave of democratization that the Middle East and North Africa (MENA) region has experienced since the start of the Arab Spring has also reached Morocco, although its experience has been a reasonably peaceful one with social demonstrations taking place regularly across the country during 2011 and only sporadic outbursts of violence noted. This social movement started with calls for political change, a curbing of corruption and a more inclusive development process. In March 2011, the King of Morocco proposed a broad and comprehensive package of political reforms that were approved in a constitutional referendum held on July 1, 2011.1 The new constitution sets the basis for a more open and democratic society, provides mechanisms for the construction of a modern state of law and institutions, and lays the foundation for extended regionalization. Transparent elections, held on November 25, 2011, were won by the Parti de la justice et du développement (PJD), a party that had traditionally been in active opposition and has seen its support increasing steadily in recent years. The PJD won 27 percent of the vote, almost twice the score of the second largest political party. An intense period of discussions among political parties then followed, leading to the formation, in early January 2012, of a four-party coalition Government, with the head of the PJD becoming the Head of Government. 2. In this context, Morocco’s unique experience reflects its political distinctiveness in the region, even though many of the same grievances among the population exist (lack of economic opportunities, corruption, widespread poverty, social inequality, unemployment). This experience has shown that Moroccans seem more inclined to seek evolution within the system – gradual change continuous with the country’s history and religious values. Morocco’s management of its own protest movement seemed well managed and the external world highlighted Morocco’s particular situation. The PJD election showed that, even in a constrained setting, the population was seeking real and sustainable change while working within the system. The protests, which continue to this day, keep the pressure on the Government to follow through on the promises and expectations expressed over the past year. The King remains popular among the general public and is widely believed to act as the guarantor of political stability and social cohesion. 3. These changes have followed on the heels of other reforms already undertaken since the current King came to power. Successive national governments have overseen an impressive political, economic and social transformation, with a marked acceleration of structural reforms in recent years. Sound macroeconomic management has produced solid foundations, and the country was on a recovery path from the stagnation of the 1990s when a series of adverse external shocks hit the economy, starting with the 2008 financial crisis. However, as shown, none of these factors provided total immunity to the rising tide of dissatisfaction and to the pressure from the outstanding development issues and challenges. The transition has shown the powerful consequences of exclusion and high levels of youth unemployment in the MENA region. Jobs are at the forefront of attention and unemployment

1 The vote in favor of the proposed reforms was 98.5 percent with a participation rate of 73 percent.

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is the main political and economic issue facing the Government. Despite a relatively favorable socio-political situation compared to some other MENA countries, Morocco still has a lot to do to address inequality and poverty, and its social indicators remain relatively low in comparison with other countries in the region. 4. The movements associated with the political transition and constitutional changes represent real pressure on the Moroccan State for meaningful and quick change. While the people seem to be willing to support the Government and its mandate, they are expecting and indeed demanding that it break with the past and usher in more credible and faster reforms, notably in the areas of job creation and improvement of the quality of public services delivered. Morocco is thus on the threshold of potentially profound social, political and economic transformation. If the Government can assume more ownership of the political process and genuinely deliver, then this will go a long way to transforming the social and political landscape of Morocco. 5. Investing in human capital through quality education is a priority in Morocco’s current development process. The low level of education and skills of the workforce is among the main factors which constrain the country’s economic growth and long-term prosperity. The labor market is imbalanced, with notable mismatches between job demands and graduation qualifications and skills. Improving the quality of outcomes in the education and training sector has become a key focus of governmental actions. To overcome the challenges faced by the education sector, previous governments embarked on a comprehensive reform of the education and training system, beginning with the 1999 National Education and Training Charter (CNEF).2 The CNEF, which enjoyed strong national consensus, declared 2000-2009 the “education and training decade”, thereby establishing education and training as a national priority. In line with royal instructions, an ambitious Education Emergency Program 2009-2012 (PUEN)3 was drawn up to build on this decade-long reform process. The Government, appointed just over a year ago, is now preparing its Education Action Plan 2013-2016 (PAMT), and is drawing lessons from the implementation of the previous action plans. 6. The proposed operation closes out a cycle of two development policy loans (DPL) that have supported the Government’s PUEN through the period 2009-2012. In 2007, the Government of the day asked five major donors (European Union [EU], European Investment Bank [EIB], French Development Agency [AFD], African Development Bank [AfDB] and World Bank) to assist the implementation of the PUEN reform agenda through the progressive application of the Paris Declaration on Aid Effectiveness. The World Bank developed the two DPLs to support the refinement and implementation of the PUEN reform agenda, in close collaboration with the other donors mentioned above. 7. The Bank has had a long and active dialogue with the Government in the education sector. A Basic Education Reform Support Project (PARSEM)–a sector-wide approach operation–supported the implementation of program reforms during the second half of the CNEF implementation period, closing in June 2009.

2 http://www.men.gov.ma/sites/fr/Lists/Pages/charte.aspx 3 http://www.men.gov.ma/sites/fr/PU-space/default.aspx; http://www.men.gov.ma/sites/fr/PU-space/bib_doc/portefeuille_fr.pdf; http://www.men.gov.ma/sites/fr/PU-space/bib_doc/SYNTHESE_Fr.pdf; http://www.men.gov.ma/sites/fr/PU-space/bib_doc/RESUME_Fr.pdf

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8. Through 2008 and 2009, joint technical and preparation missions were carried out by the five donors, known as the Technical and Financial Partners (TFP) Group. In the course of these missions, the TFP Group engaged in an active and coordinated dialogue with the Government on the new strategic framework. More specifically, the TFP Group and the Government discussed the various actions proposed to remedy the structural problems that were contributing to low education performance, especially at the basic and secondary education levels. This ongoing dialogue led to the joint identification of priority reform areas and the definition of main results/outcome indicators, along with monitoring and evaluation arrangements. Through 2010, 2011 and 2012, six-monthly joint missions were carried out by the TFP Group (which now also includes the Spanish International Cooperation Agency for Development [AECID] and the Japanese International Cooperation Agency [JICA]) to monitor progress in PUEN implementation. II. COUNTRY CONTEXT II.A. Recent economic developments

9. Since 2008, Morocco has been hit by a series of exogenous shocks. Like other emerging countries, Morocco has suffered from the 2008 global financial crisis, though the limited financial integration of Morocco into global financial markets has contained the direct contagion effects. More serious were the effects of the subsequent food and fuel crises. With the price of Brent crude oil averaging more than US$110 per barrel in 2011-2012 and no domestic oil production, Morocco has been confronted with a major deterioration of its terms of trade. This deterioration was compounded by a significant increase in its food import bill in 2012 as a result of a severe domestic drought at a time of soaring international food prices, especially of wheat. Finally, with a strong trade exposure to the EU, Morocco has been adversely affected by developments in the euro area, in particular the sovereign debt crises in Spain, Italy and other peripheral countries and subsequent slowing down of economic growth. 10. These internal and external shocks combined with significant economic rigidities have exposed the fragility of the Moroccan economy in 2012. Gross domestic product (GDP) is estimated to have grown at a positive but modest 2.7 percent, compared to 3.4 percent expected in the 2012 Budget Law. This lackluster performance reflected the continued vulnerability of the agriculture sector (which declined by 9.8 percent) to erratic rainfalls. The non-agricultural sector grew at a healthier rate of 4.6 percent; however mostly driven by debt-creating domestic demand. Public consumption increased by 5 percent and household consumption by 4.8 percent, the latter benefiting from wage rises and relatively low prices of non-food products. Investment increased at the more moderate rate of 2.7 percent, mostly driven by programs of social housing, public works, and industrial equipment. 11. The Government and the Central Bank (BAM) continued to demonstrate their commitment to control inflation. Notwithstanding higher world prices of imported commodities, inflation has been kept low thanks to price subsidies benefiting basic food and fuel products. As a result of the Government’s price controls, the average consumer price index edged up to only 1.3 percent in 2012 as compared to 0.9 percent in 2011. Among all sectors, food sector prices contributed the most to inflation in 2012 (up 2.2 percent). The upward adjustment of the administered prices for fuel products in June 2012 and related direct increase in transportation prices (by 3.2 percent) has had limited indirect effect on overall inflation.

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12. Morocco’s unemployment rate has been stubbornly high at around 9 percent—or about one million people—despite years of respectable economic growth and declining participation rates. Less than half of the Moroccan population is actually active (i.e., either employed or looking for a job), which is one of the lowest participation rates among emerging economies. Participation rates have been steadily declining from 55.3 percent in 1999 to 48.4 percent in 2012. Regarding the profile of the job seekers, four out of five unemployed are urban jobless, two-thirds are youth aged 15-29, a quarter of jobless people hold a university diploma, half of the unemployed are looking for their first jobs, and more than two-thirds have been jobless for more than one year. 13. The gradual pace of public finance reforms coupled with the economic turmoil in Europe and continued high prices of commodities have eventually had their toll on Morocco’s fiscal balance. Data released by the Moroccan authorities in early February 2013 indicate that the worsening of public finance in 2012 had been more pronounced than expected.4 According to the Ministry of Economy and Finance (MEF), the budget deficit widened to 7.6 percent of GDP, which compares to a deficit of 5.5 percent of GDP envisaged in the 2012 Budget Law.5 The deficit would have been even higher without the decision of the Government to increase the prices of liquid fuel products in June 2012 (up 19.6 percent for gasoline, 14 percent for gasoil, and 13.4 percent for industrial fuel), which helped reduce the deficit by 0.6 percentage point of GDP. 14. The current universal and open subsidy system and higher wage bill are increasingly testing Morocco’s record of fiscal prudence. Despite the good performance of tax collection in 2012 (up 6.1 percent), government revenues could not compensate for the increase in current expenditures (up 11 percent), mostly due to higher subsidies and a larger public wage bill. The combined cost of the subsidy system and the Government wage bill (at 6.6 percent of GDP and 11.5 percent of GDP, respectively) represented more than 53.0 percent of total expenditures in 2012. Their increases contributed to more than 63.5 percent of the total increase in current expenditures in 2012. Table 1. Annual subsidies in percent of GDP

Commodities 2007 2008 2009 2010 2011 2012

Food 0.8 1.1 0.7 0.7 1.0 1.1

Fuels 1.7 3.5 1.1 2.9 5.1 5.5

Total Subsidies 2.5 4.6 1.7 3.6 6.1 6.6

Source: MEF and, for 2012, World Bank staff estimates

15. Even though the fiscal deficit has been mostly financed on the domestic market, there have been no apparent signs of private sector crowding out—thanks to the relaxation of monetary policy by the BAM (see below). The Treasury issued the equivalent of 6 percent of GDP in domestic bonds and sold part of its capital in the Banque populaire for an additional 0.4 percent of GDP. To fill the financing gap, the Government raised US$1.5 billion bonds on international financial markets in December 2012. As a result, the Treasury debt increased by 5.1 percentage points of GDP in 2012 to reach 58.8 percent of GDP. While the Treasury is

4 For overall consistency of indicators, all ratios to GDP have been calculated using the estimated nominal GDP released by the HCP in February 2013 instead of the projected GDP envisaged in the Budget Law 2012. 5 The budget deficit does not take into account privatization receipts.

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mostly indebted in its own currency (with only a debt of about 14 percent of GDP denominated in foreign exchange), the level and pace of deterioration of the debt are worrisome. In just four years, Morocco’s Treasury debt increased by 11.5 percentage points of GDP. Clearly, without corrective measures, Morocco’s current fiscal stance risks impacting the sustainability of Morocco’s overall macroeconomic framework in the medium term. 16. The weakening fiscal situation has also put the balance of payments under stress. The trade deficit continued to deteriorate in 2012 due to sluggish external demand, notably from Europe, and increased value of imports due to strong domestic demand and higher world prices of imported commodities. Total nominal imports increased by 6.7 percent, while exports grew by 4.7 percent. Tourism receipts declined by 1.5 percent and workers’ remittances dropped by 3.9 percent. The current account deficit is therefore estimated to have widened to 9.6 percent of GDP in 2012.6 On the capital account side, net foreign direct investment (FDI) inflows grew by a healthy 17.6 percent during the period, thanks to foreign investors’ continued confidence in the Moroccan economy. However, total net external capital flows were not sufficient to finance the current account deficit, and net official international reserves declined by US$3.1 billion to reach the critical level of US$16.3 billion by end 2012, corresponding to 3.9 months of imports coverage. 17. To stimulate economic activity and help finance the economy—in a context of price controls and low inflation expectations—the BAM decided to reduce its policy rate from 3.25 percent to 3 percent in March 2012 and to lower the money reserve requirement for banks from 6 to 4 percent in September 2012. These decisions, together with higher weekly liquidity injections by the BAM into the domestic banking system, had the effect of relaxing the liquidity constraints in the money market and helped finance the economy. As a result, money supply increased by 5.2 percent by end 2012 after an increase of 6.5 percent in 2011. Credit to the economy increased by 5.7 percent (compared to 10.3 percent in 2011), mostly driven by credit to corporate treasuries (up 7.8 percent). The latter was in part the result of liquidity needs of businesses to compensate for large arrears overdue by the public sector. Credit to housing also increased substantially (up 6.1 percent) with the extension of the social housing programs backed by the Government. With increased access to credit and the relatively low prices of housing equipment, consumption credit jumped by 9.8 percent in 2012. At the same time, credit to business equipment dropped by 2 percent. Non-performing loans remained at an average 4.3 percent of total credit to the private sector, slightly declining over the fourth quarter of 2012. II.B. Macroeconomic outlook and debt sustainability

18. Morocco’s macroeconomic room for maneuvering has narrowed considerably. The twin deficits that have accumulated to finance the series of adverse external shocks since 2008 have largely exhausted the room for maneuver that Morocco had built prior to these crises through prudent macroeconomic policies and management. They unveiled two main weaknesses that are endangering Morocco’s external and fiscal sustainability in case of a further deterioration of its external or domestic environment. First, the slow structural transformation of the economy hinders the prospects of a rapid increase in competitiveness, exports, and quality job generation. Second is the pursuit of highly onerous fiscal policies,

6 Bank staff estimates.

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such as the universal subsidy system and tax exoneration programs. These two weaknesses are contributing to the reversal of the downward trend of public debt and the depletion of foreign reserves to critical levels.

19. Macroeconomic prospects in the medium term will greatly depend on the scope, depth and pace of Morocco’s reform programs as well as developments in Europe – the main trading partner of Morocco. Morocco is expected to benefit from ongoing reforms to improve the economy’s overall competitiveness and the effectiveness of sectoral policies. The current reforms to strengthen governance and justice, consolidate public finance, and deepen decentralization are critical to achieving long-lasting improvement in economic efficiency, productivity, and employment. Under these assumptions, economic growth should recover to around 5 percent by 2015. Inflation is projected to remain under control at 2.5 percent or below. Main macroeconomic indicators are presented in Table 2 below.

Table 2. Base-line Medium Term Macroeconomic Indicators

Est. Projections 2010 2011 2012 2013 2014 2015 2016 2017 Part A: Main Macro Aggregates

Real annual growth rates GDP at market prices 3.6 5.0 2.7 4.5 4.7 5.0 5.5 5.7

Non-Agricultural GDP 4.5 4.9 4.6 4.2 5.2 5.5 6.0 6.1 GDP per capita 2.6 3.9 1.7 3.5 3.7 4.0 4.6 4.8 Total consumption 1.5 6.8 4.8 4.0 3.4 4.4 5.2 5.5 Gross domestic investment (GDI) -1.6 3.3 2.4 1.9 3.8 4.9 5.0 5.1 Exports (GNFS) 16.6 2.1 0.8 8.0 8.9 7.4 7.4 7.4 Imports (GNFS) 3.6 5.0 1.6 4.3 5.0 5.7 6.2 6.4

Nominal GDP growth 6.7 5.0 4.0 7.1 7.2 7.4 8.0 7.8 Savings-investment balance, as percentage of GDP

Gross domestic investment 35.0 36.0 34.5 33.9 33.9 33.9 33.7 33.5 of which Government investment 5.8 5.9 5.5 5.7 5.8 5.8 5.8 5.8

Foreign savings 4.5 7.9 9.6 8.4 7.1 6.0 5.6 5.2 Gross national savings 30.5 28.1 24.9 25.5 26.9 27.9 28.2 28.3

Government savings (Privatization receipts excl.) 1.8 -1.0 -2.6 0.3 1.3 1.9 2.6 2.8 Non-Government savings 28.8 29.1 27.6 25.2 25.6 26.1 25.6 25.5

Gross domestic savings 28.0 25.0 22.6 20.4 21.8 23.0 23.4 23.8 Prices and money

CPI 0.9 0.9 1.3 2.4 2.4 2.3 2.3 2.0 Annual average exchange rate (LCU/US$) 8.4 8.1 8.1 8.9 9.3 9.3 9.4 9.4 Money growth 4.8 6.5 5.2 7.0 7.8 8.5 9.1 8.8

Part B: Government Finance Indicators Percentage of GDP

Total revenues (excl. privatization) 25.4 25.9 26.1 26.4 26.7 26.8 26.8 26.8 of which Tax revenues 23.2 23.4 23.9 24.1 24.3 24.4 24.4 24.4

Total expenditures (incl CST) 29.9 33.1 34.3 32.3 31.5 30.8 30.1 29.9 of which wages and salaries 10.3 11.1 11.5 11.2 10.8 10.6 10.4 10.4 of which subsidies 3.6 6.1 6.6 4.5 4.1 3.7 3.4 3.1

Deficit (-)/Surplus (+) (commit. Basis) -4.7 -6.9 -7.6 -5.6 -4.6 -3.8 -3.1 -2.9 Other

Total Debt of Central Government/GDP 50.3 53.7 58.8 59.4 59.0 57.8 55.8 53.9 Total interest payments/Tax revenues 9.9 9.7 10.0 10.6 10.2 9.6 9.1 8.4

Part C: Balance of Payments indicators Exports of G&S (US$, mln) 30,308 35,582 34,567 37,365 41,273 45,075 49,058 53,375 Imports of G&S (US$, mln) 40,192 49,482 48,713 50,866 53,784 57,064 61,243 65,824 Remittances (US$), change in % 3.5 12.8 -9.9 5.0 5.0 5.0 5.0 5.0 Current Account balance (in % of GDP) -4.5 -7.9 -9.6 -8.4 -7.1 -6.0 -5.6 -5.2 Net reserves (CB) in months of MGNFS 6.7 5.0 3.9 3.9 3.9 3.9 3.9 3.9

Source: Government of Morocco until 2011 and World Bank staff estimates after

20. Should the underlying sources of growth be slow to materialize, growth prospects would have to be adjusted downward. A potential deterioration of the world economy,

7

particularly in Europe, would negatively impact the medium-term macroeconomic outlook through reduced prospects on exports, including tourism, as well as on workers’ remittances and FDI flows. Similarly, sustained high commodity prices, a deterioration of the regional context and prolonged global financial uncertainties would have an adverse impact on Morocco’s prospects. Moreover, there is a potential risk that even pre-crisis growth levels might not be sustainable over the medium term if internal demand remains the key driver of growth. 21. In line with the new constitutional requirement, the Government has further committed to fiscal stability and to progressively decrease the budget deficit to the medium-term target of about 3 percent of GDP by 2016 through the implementation of a set of critical reforms. The key measures include: (i) reforming the universal subsidy system; (ii) implementing civil service reform, notably by introducing a ceiling on wage expenditures and a new remuneration system; (iii) accelerating the fiscal and pension reform agenda; and (iv) enhancing the efficiency of public as well as private investments.

22. The Government’s debt strategy is to diversify financing sources and take on a greater proportion of external financing (Table 3). In this context, new external financing schemes are being put in place beyond the classical multilateral and bilateral sources of financing. The government signed in February 2013 a grant agreement of US$1.25 billion over a five year period with the Kuwait Development Fund to support economic and social projects. In addition, the government signed in March 2013 a first installment of US$400 million grant of a total of US$ 1.25 billion committed by the Saudi Development Fund. Both grants are part of a broader cooperation agreement signed with the Gulf Cooperation Council countries last year committing US$5 billion over a five-year period. In August 2012, Morocco also benefited from a Precautionary and Liquidity Line (PLL) of US$6.2 billion approved by the International Monetary Fund (IMF). The PLL is part of the proactive approach of the Government to ensure new precautionary lines of credit to be able to cope in the event of a severe deterioration of external balances that could erupt for instance as a result of a worsening of the economic situation in Europe. Table 3. Financing Requirements of the Central Government (in percent of GDP)

Est. Projections

2012 2013 2014 2015 2016 2017

Financing required 19.4 18.4 17.2 15.7 14.9 13.9 Budget deficit (+) 7.6 5.6 4.6 3.8 3.1 2.9 Amortization 11.8 12.8 12.6 11.9 11.8 11.0

Domestic 10.5 11.6 11.3 10.6 10.3 9.6 External 1.3 1.2 1.3 1.3 1.5 1.5

Total Financing available 19.4 18.4 17.2 15.7 14.9 13.9 Domestic financing 15.3 13.2 12.9 11.7 11.4 10.6 External disbursement 3.0 3.8 3.1 2.9 2.4 2.3 Others (Privatization, grants,…) 1.1 1.4 1.2 1.1 1.1 1.0

Source: MEF and World Bank staff estimates

23. Despite its deterioration in 2012, the external position is expected to remain sustainable over the medium term provided that key critical reforms under implementation take hold. As noted earlier, the current account deficit deteriorated in 2012 and is expected to progressively edge downward to around 5.2 percent of GDP in 2017 benefiting from improved export potentials and a recovery of tourism activities and workers’ remittances. This scenario critically assumes that Morocco would benefit from its continued reform efforts

8

in trade and competitiveness, supported among others by the World Bank. These reforms, along with sector strategies already under implementation, would translate into higher productive private investments, including FDIs, and progressive gains in competitiveness of its exports, including tourism. In this context, external debt is expected to follow an inverted U-path reaching a maximum at almost 40 percent of GDP in 2015 before steadily dropping thereafter, while net foreign reserves will remain at around four months of imports. 24. Balance of payments financing requirements constitute a moderate concern in the medium term, given the country’s relatively low outstanding external debt, the financial support from the Gulf States, and still adequate foreign reserves. As the current account deficits are projected to steadily improve in the medium term, financing large share of them through traditional multilateral and bilateral credit lines along with other private capital flows, including FDIs, should not be a major constraint. In addition, the Gulf Cooperation Council countries recently confirmed their intention to invest US$5 billion over the next five years, mostly in the form of grant. Any remaining financing gap could be filled by tapping international financial markets. The PLL from the IMF will continue to provide a potential precautionary line of credit over the period 2013-2014.

25. The authorities are considering a possible move to a more formal inflation targeting system in conjunction with a more flexible exchange rate. The BAM has developed the necessary prerequisites and tools to shift to an inflation targeting framework. However, the timing of this reform should be carefully considered as it requires measures to ensure fiscal sustainability, especially with regards to reforming the subsidy system so as to prevent a negative impact on financial stability. The current exchange rate regime has contributed to macroeconomic stability, yet given the rigidities of the economy, the recent trends in the current account balance would suggest that it could possibly be undermining international competitiveness. In the future, a more flexible exchange rate policy would help strengthen structural reforms to foster competitiveness and weather external shocks.

26. A comprehensive public debt sustainability analysis indicates that the fiscal framework remains sustainable although it would weaken under some medium term downside risks (see Annex 5.1). Indeed, when the debt sustainability analysis was run under the assumption of “no-policy-change” scenario, the debt stock increased steadily over the period 2013-2018. All the six bound tests proved sustainable over the medium term, although debt of three of the tests remained high within the range of 58-60 percent of GDP, which indicates that debt sustainability remains fragile to further deterioration in Morocco’s internal or external business environment.

27. In sum, Morocco is facing growing economic and fiscal challenges. Assuming that the ongoing key fiscal and structural reforms, including those envisaged in the 2013 Budget Law and described above, are implemented in a timely fashion, Morocco’s macroeconomic framework would remain adequate and sustainable in the medium term. The projected macroeconomic outlook and the success of the structural reforms depend on a robust fiscal consolidation, a prudent monetary policy, and more flexible exchange rate policy over the medium term that supports external competitiveness. In particular, it is of utmost urgency that the government starts implementing the reform of the subsidy system to ensure the sustainability and efficiency of public finance. Until now, the adverse effects of the global environment on Morocco have been weathered relatively well, thanks to strong economic fundamentals and sound macroeconomic policies carried out over the last decade. Yet, in

9

contrast to when the international crisis struck in 2008, the Government today has much smaller margins for maneuver. Its commitment to deepen and expand the current reform efforts is key to the prospects for a sustainable recovery of investment, growth, and employment in the years to come.

III. THE GOVERNMENT’S PROGRAM AND PARTICIPATORY PROCESSES III.A. Education sector background and key issues

III.A.1 Access to, and completion of, schooling 28. Implementation of the CNEF and the PUEN resulted in impressive progress in terms of access to education. Efforts to increase the availability of educational services have led to expanded participation in education at all levels. From 1990/91 to 2012/13, national net enrollment rates increased from 52.4 percent to 98.2 percent for primary education, from 17.5 percent to 56.7 percent in lower secondary education and from 6.1 percent to 32.4 percent in upper secondary education.7 The increased enrollment in compulsory education has placed pressure on higher levels of education, leading to substantial increases in student enrollments in upper secondary schools, universities and other tertiary education institutions.

29. Progress has been made in ensuring equitable access to education for young children. While the gap between urban boys and rural girls at the primary education level narrowed to just 3.5 percentage points by 2012/13, the gap at higher levels of the education system remains large, with 53 percentage points still separating urban boys and rural girls at the lower secondary education level in 2012/13 (Figure 1).

Figure 1: Net enrollment rates for primary (left) and lower secondary (right), 2005/06 – 2012/13 (%)

Source: MEN

30. Education completion rates have improved, but, at the current pace, the Millennium Development Goal (MDG) universal primary school completion target is unlikely to be achieved by 2015. The primary school completion rate (Grades 1-6) has increased from 68.6 percent in 2005/06 to 90.0 percent in 2012/13. More than two-thirds of students complete the full two cycles of basic education (Grades 1-9). At both levels, girls’ and boys’ completion rates are now almost identical (Table 4).

7 Source: MEN.

10

Table 4: Completion rates, 2005/06 – 2011/12 (%) Grades 1-6 2005/

06

2006/

07

2007/

08

2008/

09

2009/

10

2010/

11

2011/

12

2011/

12

Total 68.6 70.8 72.5 75.8 82.5 86.5 86.2 90.0 Female-Male Ratio n.a. n.a. 104.2 104.0 103.0 101.1 100.2 99.2 Grades 1-9 2005/

06

2006/

07

2007/

08

2008/

09

2009/

10

2010/

11

2011/

12

2011/

12

Total n.a. n.a. 48.0 51.8 57.0 64.6 65.3 70.5 Female-Male Ratio n.a. n.a. 115.6 112.5 112.0 103.6 101.2 97.9 Source: MEN III.A.2. Schooling outcomes 31. To its credit, Morocco has been able to maintain a constant, albeit low, level of education quality all the while increasing school education coverage (at a particularly rapid rate in primary education). Figure 2 shows the percentages of students from Morocco and other MENA countries attaining each international benchmark for Grade 4 mathematics across the last three editions (2003, 2007 and 2011) of the international Trends in Mathematics and Science Study (TIMSS), compared with two better-performing countries (Hungary and Turkey) and the international median. The 2011 editions of TIMSS and the Progress in International Reading Literacy Study (PIRLS) showed low learning achievement scores for Moroccan Grade 4 and Grade 8 students compared to those from other participating countries. With the exception of Dubai UAE (for the Grade 8 tests in mathematics and science), no Arab state achieved above the international medians; among the participating Arab states, Morocco and Yemen produced the weakest scores. In Grade 4 mathematics, for example, 74 percent of Moroccan students did not reach even the lowest of four benchmark levels,8 while none at all reached the highest benchmark level; this compares with the international median of 10 percent not reaching even the lowest benchmark and 4 percent reaching the highest benchmark. In Grade 4 reading, 79 percent of Moroccan students did not reach the lowest benchmark, and once again none reached the highest benchmark; the international median scores 8 percent and 5 percent for these two benchmark levels respectively.

8 In response to the following TIMSS Grade 4 mathematics question involving the addition of two three-place whole numbers based on the reading of situation text – “There are 218 passengers and 191 crew members on a ship. How many people are on the ship altogether?” – only 35% of Moroccan students answered correctly.

11

Figure 2: TIMSS 2003, 2007 & 2011 Mathematics (Grade 4) Scores: proportion by benchmark level, in selected countries

Source: IEA & Boston College 32. Learning achievement is uneven within the country. The first National Learning Assessment Program (PNEA), carried out jointly in 2008 by the CSE and the Ministry of Education (MEN), points to small gender gaps in mathematics and science, but large gender gaps in favor of girls in Arabic and French (Table 5). In addition, there are considerable differences between urban and rural areas and between public and private schools (even when the comparison is between urban public and private settings). Unfortunately, the second PNEA, originally scheduled for 2011, has been postponed until 2013 as a result of ongoing teacher strikes.

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12

Table 5: Average scores9 in mathematics and Arabic (%), by grade, in 2008 Mathematics Grade 4 Grade 6 Grade 8 Grade 9 Male 34 43 26 29 Female 35 45 25 28 Urban 38 48 26 31 Rural 31 39 22 22 Public school (urban only) 38 49 26 31 Private school 57 68 53 65 Arabic Grade 4 Grade 6 Grade 8 Grade 9 Male 25 33 39 40 Female 29 39 46 46 Urban 32 39 44 44 Rural 24 32 37 40 Source: CSE (National Learning Assessment Program 2008) 33. The legacy of poor access to education weighs on the adult population’s education capital. In the past, few Moroccan males and even fewer females had access to schooling, with only a small proportion reaching secondary and higher education. Literacy rates have as a result long been low. The effects of the recent increase in school enrollments, however, can be seen in the positive trends in literacy over the past 25 years, with both overall rates increasing and (in the case of young adults who have graduated more recently from the formal school system) the gender gaps narrowing. III.A.3. School sector financing 34. The leveling-off in primary student enrollment10 that has followed a demographic decline in the relevant school-age population,11 along with the ongoing shift from public to private provision,12 provides favorable conditions for a reallocation of resources to support expansion of other levels of the education system; at present, secondary education (lower secondary and upper secondary combined) absorbs more than half of the education sector budget. That said, there is room for achieving greater efficiencies in the school education system, particularly at the secondary level; at the broadest level, public spending, as a proportion of both the overall national budget and GDP, is high by international standards whereas results are average (primary enrollment rates) to below-average (repetition rates, gender equity in secondary education, scores in international learning assessment surveys). Teacher remuneration, as measured against per capita GDP, is at the high end of the international middle-income country range at the primary level and very high at the secondary level; this results in high per-student costs relative to comparable countries. Whereas student-teacher ratios (although high by MENA standards) are now in line with international norms, a large proportion of teachers at the secondary level still do not teach the minimum number of weekly hours (see Table 6).13

9 Percentage of questions receiving a correct response among the target sample. 10 From 4,022,600 in 2004/05 to 4,016,934 in 2011/12 (Source: MEN). 11 Source: HCP 12 The share of students enrolled in private education has gone from 6.6% in 2004/05 to 12.9% in 2011/12 at the primary level, and from 2.7% in 2004/05 to 7.2% in 2011/12 at the lower secondary level. 13 World Bank (2012) Education Public Expenditure Review (draft).

13

Table 6: Share (%) of teachers teaching minimum number of weekly hours, by level, 2008-2011 2008 2009 2010 2011 Primary Share of teachers teaching minimum number of hours 95.1 97.2 93.6 99.0 Share of teachers without teaching load 4.0 2.3 1.4 0.7 Lower Secondary Share of teachers teaching minimum number of hours 34.2 40.2 43.0 59.3 Share of teachers without teaching load 3.3 3.5 3.1 1.2 Upper Secondary Share of teachers teaching minimum number of hours 13.2 32.1 33.3 46.2 Share of teachers without teaching load 2.6 2.3 1.3 1.6 Source : MEN III.A.4. School sector governance 35. Decentralization of the governance of the education sector is under way, even though effectiveness of these reforms remains a key challenge. The capacity of the Regional Education Offices (AREF), which have been granted some administrative and financial autonomy, has improved over time. The AREFs have played an important role in leading the reform program at the regional and sub-regional levels. 36. There exists also an independent evaluation institution under the Higher Council for Education (CSE) to evaluate system performance and disseminate its findings and results. The publication of its first report in April 2008 led to a welcome debate among the various stakeholders on increasing outcome measurements and accelerating the improvement of the education and training sectors. This new institution is expected to help the system manage for results and ensure greater accountability.

37. With increasing public awareness on quality of life, the environmental protection and sustainable development agenda has become a national priority. An Environmental Impact Assessment (EIA) system consistent with international good practices is now fully operational, at the national and regional levels, and contributes to the mainstreaming of social and environmental dimensions in development activities. The Government has successfully developed the necessary EIA operational tools and manuals14 for the preparation and review of the EIA system including the appropriate procedures for public consultation as well as an annual reporting of its activities and achievements.15

38. The MEN applies an “Environmental and Social Protection Framework”16 to its school construction program. The Framework aims to prevent, attenuate or compensate for a range of negative impacts that may arise from school construction, and ensure that: (i) the safety and security of buildings’ users are guaranteed; (ii) energy use is as efficient as

14 MEMEE : Référentiel sur les études d’impact sur l’environnement, http://www.environnement.gov.ma/PDFs/referentiel_eie.pdf 15 MEMEE: Rapport annuel des activités du Comité national des études d’impact sur l’environnement pour l’année 2011, Rapport annuel es Comités régionaux des études d’impact sur l’environnement 16 Cadre de protection environnementale et sociale

14

possible; (iii) buildings are accessible to disabled users; (iv) sites are managed in ways that respect users’ and neighbors’ health and well-being (e.g., efficient water use, waste management, management of dangerous goods, proper use of safety equipment); and (v) all land acquired is suitable for school construction. 39. Accumulation of arrears in compensations for resettlement with respect to land acquisitions has been a generic issue in Morocco. Some structural weaknesses in the practices related to land acquisition in the schools sector were noted in the assessments carried out in 2009 by the World Bank and the AFD and recommendations were made with a view to clear compensation claim arrears and reduce the time taking to deal with new compensation claims. Since 2009, the MEN and the MEF have put in place mechanisms to better monitor land acquisition and related compensation payments, and the MEF has settled a significant number of compensation cases, over a period when, moreover, the volume of new acquisitions through expropriation – whether measured in terms of land area or land value – has decreased dramatically. The time now taken to deal with new claims is on average three months.

III.A.5. Transition from school to work 40. Morocco’s unemployment rate has fallen during the last years, thanks mainly to the good economic growth that was brought about by the expansion of the service, commerce and public works sectors and lower labor force growth. The unemployment rate was reduced from 13 percent in 2000 to 8.9 percent in 2011. The difference between female and male unemployment has also significantly diminished (9.6 percent for women, 8.9 percent for men, in 2009). Unemployment rates are higher in urban areas (13.7 percent) than in rural areas (3.9 percent), for young people (17.6 percent for those aged 15-24), especially those living in urban areas (31.3 percent), and for skilled workers. Higher education graduates, however, represent only 20 percent of unemployed workers aged 15-34, while one-third of the unemployed population has no diploma.17 Overall, it appears that unemployment is much higher for graduates from “open enrollment” university programs (22.3 percent), secondary education (21.7 percent) and vocational training (19.7 percent), particularly short vocational training programs (25.2 percent). Unfortunately, detailed information on the labor market entry rates of higher education graduates – broken down by characteristics such as region, discipline and level – is not yet available. Better information is available for vocational training graduates, where employment rates are significantly higher in some areas (construction, engineering, fisheries and tourism) than in others (textile, information technology and management). 41. School-to-work transition is a major problem, with first-time job-seekers representing half of the unemployed population. Unemployment spells are mainly of long duration, especially in the case of skilled workers. In fact, the incidence of long-term (i.e., longer than 12 months) unemployment is 83 percent among skilled workers, compared with 60 percent among the unskilled unemployed. This situation points to the structural nature of unemployment in Morocco and the need for targeted interventions to retrain the long-term unemployed and facilitate the job search process. Indeed, long-term unemployment can reduce the chances of finding a job as workers lose skills and because of negative signaling.

17 Source: HCP, 2010.

15

42. Youth unemployment co-exists with a high level of inactivity. According to a recent World Bank study,18 the proportion of young men who are inactive (25 percent) is, in fact, greater than the percentage of those who are unemployed (16 percent). Most young men are inactive because they are discouraged. Ninety-three percent of young women with no education are out of the labor force, compared to only 37 percent of young women with higher education, suggesting higher returns to education as well as their greater ability to overcome social barriers to participating in the labor force. III.B. Government program

III.B.1. Socio-economic program 43. The PJD election platform emphasized anti-corruption and set out policy proposals to deliver on good governance, justice, revamping the delivery and quality of social services and improving people’s economic inclusion. As part of its mandate, the Government is charged with implementing the changes proposed in the new Constitution as regards putting in place a new institutional model based on separated, balanced and complementary powers. In particular, the new Constitution reinforces the principles of good governance, human rights, protection of individual freedoms, as well as more responsibility and accountability for institutions. These themes are all central to the Government’s 2012-2016 program, which was presented to Parliament in January 2012. 44. As regards good governance, the areas of future focus are multiple, including public administration reform, simplification of procedures, access to information, reform of fiscal system, budget reform, regionalization and decentralization, and a profound reform of the justice sector. Social solidarity, participation and inclusion are all emphasized with a special focus on youth and families. Improving the transparency of economic and financial governance is given particular mention with a strengthening of the Competition Council and improving governance of state-owned enterprises.

45. For the period 2012-2016, the program aims for a growth rate of 5.5 percent, an inflation rate of 2 percent, reducing unemployment to 8 percent and aiming for a progressive reduction in the budget deficit to 3 percent by 2016. Key areas of priority on the economic front include strengthening the competitiveness of the economy, improving the business climate, support to SMEs, encouraging exports and land registry reform. Addressing unemployment to bring the rate down to 8 percent by 2016 will demand an integrated approach and includes measures to continue support to employment creation programs undertaken to date and introduction of new programs to insert the unemployed into businesses and associations. Social assistance and pension reform are also being pursued as part of a broader and more comprehensive overhaul of the compensation system. III.B.2. Education Emergency Program (PUEN) 2009-2012: project-based sector management 46. The proposed operation itself recognizes the achievements of the second half of the PUEN – 2011 and 2012 – and is aligned with the directions set out in the draft Education Action Plan 2013-2016 (PAMT), which itself emphasizes continuity over the medium term in education sector reform. As noted above, previous governments implemented a

18 World Bank. [Ongoing]. Promoting Youth Opportunities and Participation.

16

comprehensive set of reform measures in the education sector, through the CNEF 1999-2009 and the PUEN 2009-2012. The impetus to promote education reforms in Morocco came in part from the publication of major sector reports, including (i) the World Bank’s Flagship Report in 2008 (“The Road Not Traveled”)19 and (ii) the CSE’s 2008 Annual Report.20 47. The fundamental guiding principle of the PUEN placed the student at the heart of the education and training system. The key goal was to provide the student with basic competencies by establishing an environment conducive to learning and using qualified teachers. The PUEN, spanning the period of 2009-12, drew on lessons learned during the previous decade, and presented a comprehensive policy framework, with a sizeable expenditure program (MAD 34 billion or US$4.1 billion), to significantly improve education outcomes from pre-school to university. The PUEN pursued four strategic directions: (i) achieve universal basic education; (ii) promote initiative and excellence in post-basic education; (iii) improve system performance (teaching, management and stewardship); and (iv) mobilize and utilize resources. Associated targets included increasing net enrollment rates for pre-school, primary and lower secondary education from 48.2 percent, 90.5 percent, and 42.7 percent in 2008/09 to 54.2 percent, 98.2 percent 56.4 percent, respectively by 2012/13. 48. Over the PUEN period, Morocco witnessed significant results in primary education (with near-universal access for girls and boys alike, lower repetition and drop-out rates and higher completion rates), but less dramatic improvements in lower secondary education (with large gaps between urban and rural participation and stubbornly high rates of repetition and drop-out). There was strong program ownership within the MEN and AREFs (with, however, a notable lack of coordination across key PUEN projects), but it was noted that province-level and particularly school-level players (namely, school principals and teachers) were not sufficiently equipped to deliver the reforms effectively in the classroom. This was particularly true, for example, of the projects aimed at identifying and remedying weak learning performance through a child-centered, skills-based pedagogy. Whereas PUEN implementation was well supported through administrative documentation (circulars, guidelines and other written materials), school principals and classroom teachers had little access to professional support from trainers, inspectors and other resource staff and suffered at times from a lack of cross-project coordination. Finally, while the decentralization agenda allowed important decisions to be taken locally on the basis of local information, the decentralized entities (in particular the AREFs) often did not have the systems and tools to manage PUEN implementation effectively. III.B.2. Education Action Plan (PAMT) 2013-2016: quality schools and classrooms 49. Human development is prioritized in the current Government’s program. For the health sector, reducing infant and maternal mortality in order to achieve the MDGs is the main priority. Supporting the National Initiative for Human Development (INDH) is also key to the plan, as is the need to address housing shortages and focusing on women, youth and disadvantaged people. In the area of education, the Government’s manifesto,21 adopted by the

19 Report No. 46789: http://siteresources.worldbank.org/INTMENA/Resources/EDU_Flagship_Full_ENG.pdf 20 CSE. 2008. Rapport annuel 2008: Etat et perspectives du système d’éducation et de formation. Rabat: CSE 21 http://www.maroc.ma/NR/rdonlyres/62F451B1-275B-4A3D-B024-B9E018A7362F/0/Programme_Gouvernement_2012_BON.pdf

17

Moroccan parliament on January 26, 2012, linked the quality of education to appropriate governance arrangements. The central theme is to push decentralization to the school level. On August 20, 2012, the King of Morocco, in a speech centered around youth,22 indicated that education was at the top of the list of national priorities; he stressed the importance not just of equitable access to education and training but also of equitable access to quality learning opportunities, which he defined as equipping young people for “the life that awaits them” and which therefore requires teachers to adopt a student-centered approach that encourages critical thinking rather than memorization of facts.

50. The draft PAMT 2013-2016, currently under internal discussion and external consultation, adopts three principles that are derived from lessons learned during the implementation of the CNEF 1999-2009 and the PUEN 2009-2012: (i) the PAMT 2013-2016 will consolidate and extend the achievements of the earlier cycles with a view to long-term improvements, rather than engage in a radically new direction; (ii) major efforts will be made to better prioritize key policy interventions, in order to focus resources on realistic goals; and (iii) these policy interventions will be implemented in ways that rely on improved coordination and greater coherency between the various actors, both vertically (between central, regional, provincial and school levels) and horizontally (across services at a given level). The key policy interventions, organized into four groupings, are an extension of the PUEN achievements: (a) access and equity; (b) teaching and learning quality; (c) governance and decentralization, through to the school level; and (d) human resource management. The PAMT is likely to have an even greater emphasis than the PUEN on school-based management and classroom-based teaching practices, as the Government is eager both to ensure that school principals and teachers are better empowered and supported and that the reforms designed at higher levels truly impact student learning achievement. III.C. Implementation costs

51. As seen in Figure 3, the Government backed its commitment to the PUEN 2009-2012 by increasing the budget allocated to the school education sector, with a significant initial boost in 2009. Over the period of PUEN implementation, public expenditure on school education has remained steady as a share of GDP around 6 percent and has fluctuated somewhat as a share of the overall State budget around 25 percent. This fiscal effort has focused on non-salary expenditures, with the share of the budget going to investment and non-salary recurrent items rising from 16.6 percent in 2008 to 25.7 percent in 2009, 26.5 percent in 2010, 31.9 percent in 2011 and 27.7 percent in 2012. The overall cost of the PUEN 2009-2012 was estimated at MAD 34.0 billion (US$4.1 billion), averaging MAD 8.5 billion per year, which corresponds to largest part of the investment and non-salary recurrent budget. The cost has been shared between the Government (around four-fifths) and the TFPs (around one-fifth).

22 http://www.maroc.ma/NR/rdonlyres/00002847/pisucmbspfzncmtmmvtoyzhcpqkmyrpw/TexteintégraldudiscoursRoya20aoutl.pdf

18

Figure 3: School Education Budget 2005-2012, as amounts in MAD billions (primary y-axis) and as share of State budget and GDP (secondary y-axis)

Source: MEN

52. Table 7 shows the amounts committed by the TFPs other than the World Bank, provided either through investment operations (“invest”) or through budget support operations (“budget”).

Table 7: Commitments by Technical and Financial Partners to the Government’s Education Emergency Program (in EU€ million)

2009 2010 2011 2012 2013* Total Type AECID 4.0 4.0 4.0 12.0 Budget AFD 10.0 12.5 12.5 15.0 50.0 Invest AfDB 37.0 38.0 113.0 188.0 Budget EIB23 60.0 60.0 60.0 20.0 200.0 Invest IBRD 44.2 78.1 122.3 Budget JICA 73.8 73.8 Hybrid EU 30.0 21.0 21.0 21.0 93.0 Budget NIF24 5.0 5.0 5.0 15.0 Invest Total 142.0 146.7 140.5 60.0 264.9 754.1

Source: TFPs; *amounts scheduled for 2013 have not yet been committed. III.D. Participatory process

53. Since 2006, the CSE has served as the main forum for wide-ranging consultation on education policy. The CSE, which answers directly to the King, has around 100 members drawn from the Government, the Parliament, specialized State entities, MEN staff, AREFs, universities, teacher unions, parent associations, student organizations, industry, and NGOs. The CSE is consulted on all education reform, advises on all national education matters and carries out comprehensive evaluations of the national education system of education. With

23 EIB’s commitment amounts may vary from year to year, within the fixed total amount. 24 The Neighborhood Investment Facility (NIF) is a separate funding facility financed by contributions from EC and member states.

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20

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20

07

20

08

20

09

20

10

20

11

20

12

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Investment

Share State budget

Share GDP

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the CSE, Morocco has a permanent and independent source of advice that reflects the different components of society. 54. As part of the development of its PUEN 2009-2012, the Government engaged in consultations with various stakeholders. In the fall of 2007, the King of Morocco instructed the Government to develop the PUEN to speed up the implementation of the education reform agenda. During the first round of program development, the consulting firm hired to provide technical assistance to the Government consulted with regional and provincial education officials, focusing on a number of pilot sites. In a second round, the MEN met with parliamentarians and teacher union representatives to present the draft program and receive feedback. With the third round of development, the MEN tested the feasibility of the final draft by consulting with governors, as well as regional and provincial education officials, in a series of regional forums, again in pilot sites. 55. In preparing its PAMT 2013-2016, the MEN intends to consult with a range of stakeholders both inside and outside the education sector – teacher unions, parents, students, communities – before presenting the program to the CSE for validation and then to the Government for final approval. IV. BANK SUPPORT TO THE GOVERNMENT’S STRATEGY

IV.A. Link to the Country Partnership Strategy

56. The Country Partnership Strategy25,26 (CPS) comprises three pillars. These pillars are: (i) encouraging growth, competitiveness and employment; (ii) improving quality service delivery to citizens; and (iii) promoting sustainable development within the context of climate change. Other cross cutting themes, such as regional development, governance, public private partnerships, and regional integration, are also covered. The proposed operation is part of the Bank’s support to the second CPS pillar and, as such, will address the issue of quality education service delivery through: (a) improved management of the sector by way of increased decentralization to, and accountability of, the AREFs; (b) increased targeting as a means to reach the most vulnerable; and (c) enhanced accountability of education personnel. The proposed operation is also aligned with the Bank’s new framework for engagement in MENA, with its focus on improving the social and economic inclusion of disadvantaged groups, strengthening governance through transparency and accountability, and on gender equality.

IV.B. Collaboration with the International Monetary Fund and other donors

57. The World Bank and the IMF maintain a close collaboration in Morocco. Regular exchanges between Fund and Bank country teams are customary. Discussions focus on the respective work programs, country priorities, recent developments and prospects, and reflect the growing weight of DPLs in the Bank’s Morocco portfolio. The Fund participates in Bank project review meetings where relevant. Similarly, Bank staff was consulted in the context of

25 World Bank. 2009. Country Partnership Strategy for the Kingdom of Morocco for the Period FY10-13. (No. 50316-MA) 26 World Bank. 2012. Country Partnership Strategy Progress Report for the Kingdom of Morocco for the Period FY10-13. (No. 67694-MA)

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the IMF’s 2012 Article IV consultation with Morocco, which was concluded by the IMF’s Board on February 1, 2013. The IMF has also completed its first review of Morocco’s performance under the economic program supported by the PLL arrangement (approved on August 3, 2012 in an amount equivalent to about US$6.2 billion) and reaffirmed Morocco’s continued qualification to access PLL resources. The Public Information Notice issued by the IMF on February 5, 2013 is provided in Annex 4. 58. The proposed operation was prepared in close consultation and coordination with main donors active in Morocco’s education sector. The Government demonstrated great interest in the results of the Paris Declaration on Aid Effectiveness. As a result, the Government requested the World Bank and the donor community to support the reform program, using the principles of the Declaration. A non-binding partnership framework has been signed by the Government and a wide group of donor representatives (including the World Bank) with a view to encouraging donor support in the education sector.

59. The World Bank works closely with other donors. In line with the main principles put forward by the partnership framework, the World Bank joined with six major sector donors (AECID, AFD, AfDB, EIB, EU and JICA) to form the TFP Group, offering technical and financial support to the Government as it implemented its PUEN. This level of harmonization among major donors marks an important advance in donor relations with the Government. AECID, AfDB, EU and the World Bank are providing their funds in the form of budget support; AFD and EIB (along with the EU’s Neighborhood Investment Facility [NIF]) are providing programmatic investment financing; JICA is using a hybrid instrument, partly budget support (adopting the World Bank’s policy matrix and adding four prior actions of its own related especially to school-level management)27 and partly project investment financing.

60. The TFP Group worked together with the Government to establish a common results framework and common monitoring and reporting arrangements that underpin each TFP’s support of the PUEN. While the overall results framework is common to all TFPs, each TFP has its own financing operation with prior actions that differ slightly from one to another. All TFPs other than the World Bank have signed their respective financing agreements with the Government, for a total commitment amount of EU€ 433.0 million (US$579.2 million equivalent) over four years. To provide a structure for coordinating their parallel financing operations with the Government’s own PUEN implementation, the TFPs and the Government developed a memorandum of understanding and an associated operational manual. The memorandum28 has been signed by the Government, AFD, AfDB, EU and EIB; while the World Bank has not signed the memorandum, it operates in accordance with the principles set out therein.

27 JICA-specific prior actions: [1] Reinforce the concept of monitoring the school and support mechanisms to improve education and learning processes; [2] Ensure the effective implementation of the « school project » based on the new concept; [3] Develop and formalize organizational, pedagogical and technical process of implementation of Regional Teacher Training Centers; and [4] Motivate parents and community members to enroll and keep their children in school at the level of basic education (primary and secondary). 28 The memorandum provides that where there is a conflict between the memorandum and the individual financing agreements the latter prevail.

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IV.C. Relationship to other Bank operations

61. The Bank has a long history of active engagement in Morocco’s education and other social sectors. Over the past decade, four relevant projects -- Social Priorities (Education) Program (4024-MOR), Alpha Maroc (Adult Literacy) Project (4607-MOR), Social Development Agency Project (4661-MOR) and PARSEM (7273-MOR) -- were fully executed. These operations assisted the Government in: (i) increasing access to basic education, literacy and other social services; and (ii) improving the quality and effectiveness of service delivery. Overall, these projects were implemented successfully with respect to the objective of increasing access to basic services and promoting participatory approaches and partnership arrangements.29 The Social Priorities (Education) Program and the Social Development Agency project results were remarkable in this regard. Achievements regarding quality of service delivery were less positive. 62. The proposed Second Education Development Loan (EDPL2) builds on the First Education Development Loan (EDPL1) (7879-MOR), which closed on March 31, 2011. These two basic education operations are complemented by other DPLs under preparation that seek to address other key constraints to promoting the type of growth that will create good quality jobs in Morocco and that target service delivery improvements in education and skills and in other areas of the public administration system. The dialogue across these different operations (see descriptions below) has been closely coordinated.

63. The First Skills and Employment DPL, developed through a partnership bringing together four ministries – education, labor, finance and economic affairs – seeks to: (i) match skills developed within the vocational training and higher education systems to the needs of the labor market; (ii) improve the effectiveness of intermediation services, including active labor market programs; (iii) improve job quality; and (iv) strengthen the labor market information system.

64. The First Economic Competitiveness Support Program DPL aims at: (i) improving the investment climate, in particular by removing barriers to entry and competition, simplifying the regulatory environment for doing business and reducing discretion in the implementation of the rules by increasing transparency and access to information; (ii) furthering trade policy reform and trade facilitation, in particular by pursuing the ongoing tariff rationalization (levels and bands), strengthening the regulatory framework for import standards and easing logistics at ports of entry; and (iii) improving economic governance, by strengthening significantly the Competition Agency’s missions and prerogatives, increasing transparency and accountability in the way the investment incentives are granted and sectoral policies conducted, and strengthening the public-private coordination body for investment climate reforms.

65. The Second Financial Sector DPL (under preparation) continues to support the reform agenda already initiated under the First Financial Sector DPL approved by the Board in January 2010. Specifically, it fosters: (i) household and small and medium enterprises (SME) access to financial services; (ii) increased financial stability, supervision and regulation; and (iii) capital market development. Key reforms supported include a new guarantee scheme targeting micro-enterprises and measures to strengthen the functioning of private equity markets.

29 PARSEM was closed in June 2009 and the ICR delivered in December 2009.

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66. The Accountability and Transparency DPL is being prepared to build on the Bank’s previous engagement in public sector administration reform. There is broad agreement with the Government that this new DPL series will focus on accountability, transparency and public service delivery reforms, in line with the goals and objectives of Morocco's transition as envisaged under the new constitution, thus focusing on school to work transition. IV.D. Lessons learned

67. The proposed operation design was informed by lessons learned from the above-mentioned projects and sector DPLs in Morocco, as well as from general experience with human development sector DPLs implemented in other countries. Main lessons learned are summarized below, first those concerning education policy and second those linked to reform processes. IV.D.1. Education policy lessons 68. International experience brings to bear lessons on a number of areas that are featured in the proposed operation. 69. First, demand-side interventions have improved retention where they include conditional cash transfers (used in contexts as diverse as Mexico and New York), school transport, school feeding (supported throughout the developing world by the World Food Program).

70. Second, assessing student performance is critical to inform practitioners (teachers, school leadership, as well as local and national decision-makers) of the true level of students and schools. In addition, disseminating results to concerned stakeholders, like parents and communities, has been shown to exert a positive effect on the accountability of education providers because assessment results give content to a stakeholder’s voice.30

71. Third, pre- and in-service training should focus on adapted instructional practices for: (i) improving literacy in early grades (which could include pilots on using national languages, such as those used in West Africa, for example, in the Gambia); (ii) teaching to heterogeneous learning levels (differentiated pedagogy is used in France); and (iii) remedial instruction. International evidence reveals that all these have the potential to improve repetition and drop-out rates. Workshops to demonstrate how best to use the student record booklet would also be beneficial, as these can form the basis of personalized work plans for students. Good monitoring of teacher in-service training is essential to discover to what extent the lessons have been appropriated by the learner (the in-service teachers in this case) and how they will change their instructional practices in class. This is the only way the efficacy of the in-service modules can be gauged; waiting for class inspections is too late. In the absence of effective in-service training, collaboration – the extent to which educators work together on behalf of students – is also an important predictor of success. Teachers who work closely with other teachers to improve their instruction, adhere to the norms associated with peer review.31

30 World Bank, 2011, Making Schools Work: New Evidence on Accountability Reforms 31 Fullan, M., 2011, Choosing the Wrong Drivers for Whole System Reform

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72. Fourth, school-based management initiatives should focus in their action plans on improving school climate, which directly affects retention. International evidence from TIMSS 2011 reveals that, in Morocco, only 29 percent of Grade 4 and 26 percent of Grade 8 Moroccan students report that their school is ‘safe and orderly’ compared to the international average of 45 percent and 49 percent for the same grades. International research shows that when education authorities delegate more responsibilities to schools to mobilize and manage the inputs necessary to address local circumstances and changing demand for education services, there is a wide range of configurations possible. Nevertheless, more autonomous schools have three features of note: (i) the margin of freedom of schools to acquire and manage resources (financial, human, material) as they see fit to meet expected results; (ii) the possibility of diversifying sources of revenue; and (iii) greater use of performance-based agreements tied to resource allocation. 73. Within the Morocco setting, the EDPL1 Implementation Completion and Results Report32 showed that many of the EDPL1 prior actions “set the ground” for longer term improvement in educational outcomes. For example, the results of the first national student learning survey (EDPL1 Prior Action1.2) provoked public debate in the quality of education. The transfer of initial pre-service teacher training to universities (EDPL1 Prior